India Introduces New UPI Fee Framework, Keeps P2P and Small Payments Free

India’s digital payments system is entering a new phase as the National Payments Corporation of India (NPCI) introduces new UPI fee rules from October 15, 2026. The framework introduces a Merchant Discount Rate (MDR) for selected merchant payments, but it does not charge everyday users for routine UPI transactions.

UPI has become a central part of India’s digital payments ecosystem and handled 24.51 billion transactions in August 2026. The scale of these payments highlights the growing importance of a sustainable UPI system for banks, payment providers and merchants. According to early estimates, the new 0.4% UPI MDR framework could generate around ₹16,000–₹17,000 crore in additional annual revenue for India’s UPI ecosystem. In addition, the new system aims to support continued investment in payment technology, infrastructure and wider digital acceptance. Overall, the new UPI MDR rules create a fee structure for select higher-value commercial payments while keeping everyday digital transactions broadly accessible.

New UPI MDR Rules Set 0.4% Fee on Select Merchant Payments Above ₹2,000

Under the new UPI fee framework, eligible Person-to-Merchant (P2M) payments above ₹2,000 will attract a 0.4% Merchant Discount Rate (MDR). However, the charge will not apply to every payment above the threshold. The merchant’s category will determine whether the transaction falls under the new rules. The MDR will also have a ₹300 cap for transactions of ₹75,000 or more. In addition, specified sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will face a flat ₹5 MDR on eligible payments above ₹2,000.

The new UPI MDR framework also includes a separate rate for capital-market payments. These transactions will carry a 0.02% MDR, with the charge capped at ₹300. The category covers services linked to mutual funds, securities, stockbrokers and dealers. However, MDR remains a merchant-side charge, rather than a separate fee for the customer. The new structure has created a formal pricing mechanism for selected commercial transactions while keeping the rules focused on specific categories. As a result, the framework separates higher-value merchant payments from the everyday UPI transactions that remain outside these charges.

P2P UPI Transfers and Small Payments Stay Free Under the New Framework

Person-to-person UPI transfers will remain free, regardless of the amount involved. Users can continue sending money to friends and family without an MDR charge. Also, UPI application providers cannot add platform or hidden fees to these transfers. Merchant payments of ₹2,000 or below will also remain outside the MDR framework. However, the new rules focus on selected higher-value Person-to-Merchant (P2M) transactions, where the merchant category and applicable exemptions will determine whether MDR applies. In addition, eligible small merchants that receive up to ₹1 lakh a month through UPI QR codes will continue to pay zero MDR, helping protect smaller businesses from additional payment costs.

The new UPI fee framework also aims to strengthen digital payment infrastructure for smaller businesses. A dedicated fund will support UPI acceptance and payment infrastructure across Tier 3 to Tier 6 centres, including the Northeast, Jammu and Kashmir, and Ladakh. In addition, the Reserve Bank of India will help finalise the fund’s detailed framework within three months. UPI has also expanded beyond one-time payments, with UPI AutoPay and recurring mandates covering services such as utilities and OTT subscriptions. The framework therefore keeps everyday UPI payments free while creating a revenue model for sustaining the infrastructure behind India’s rapidly expanding digital payment network.

Web Resources on India Introduces New UPI Fee Framework

1. BBC : The small fee raising big questions for India’s payments revolution.
2. Reuters : India’s UPI ends free era with fee on large merchant payments.
3. DD News : UPI to Remain Free for P2P Transactions, 96% of Merchant Payments.